legalization

New York Weed Dealers Face a Choice: Go Corporate or Stay Underground

Photo: VIEW press/Corbis via Getty Images

The most expensive brand of marijuana on Phil’s* 4/20 menu was Wild Cherry, a mind-numbingly potent strain with a THC level of 29 percent, and he was selling it for $75 an eighth — which isn’t a bad price at all. In fact, sales have been good for Phil recently. With affluent professionals and rich students anxious about the pandemic and stuck in their homes, he’s expanded his six-year-old delivery business beyond Manhattan, and its private Instagram page has swelled to more than 500 followers. He won’t say how much money he made last year, but he characterized the amount as “decent,” and later “sizable,” in a way that left it unclear whether he was downplaying or bragging.

Now everything is about to change. Last month, Governor Andrew Cuomo signed into law the country’s most progressive marijuana legalization bill, making New York the 15th state to legalize recreational marijuana. While the law should be a boon for the legions of marijuana sellers, distributors, and growers who have been selling the drug here for decades, it’s instead flooded the industry with sophisticated Wall Street and Silicon Valley investors — making the future in an already-precarious industry even more uncertain. Phil said he’s now in survival mode, working seven days a week to prepare for what he believes will be the crushing of the underground within a few years. He estimated it will cost millions of dollars in licensing and lawyering to navigate the soon-to-be regulated market, and he wants to partner with a big financial backer so he doesn’t get shut out of his own industry.

“New York is a relentlessly competitive market,” he told Curbed. “The legal market is full of so many talented and ambitious people — and ruthlessly ambitious people — who have a lot of money. Even if you’re the smartest guy in the black market and you’ve got quite a bit of cash, which is going to be useless, you’re never going to be able to compete.”

Phil isn’t alone. New York is one of the largest markets for marijuana in the country, with an estimated $3.7 billion in annual sales, according to a recent study. Right now there are only 40 medical marijuana dispensaries — ten in New York City — for the state’s roughly 20 million residents, far fewer than in states like Florida, Michigan, and Illinois, according to the New York Medical Cannabis Industry Association. Weed dealers, accustomed to the gut-driven and aggressive world of illicit drug sales, are now trying to figure out how they’re going to make money against a new breed of competitors more likely to have MBAs than arrest records. Four who spoke to New York said they are looking to change how they run their businesses, though they all differed on whether to go it alone or partner up with Big Weed as they bring their businesses fully into the light. While some are weighing tax schedules, speaking with branding experts, and plotting how to scale their business for the possible Uberfication of the weed market, others aren’t so impressed, and plan on doubling down on illicit sales.

“There’s always going to be a black market,” G., who was selling weed and edibles out of a backpack from a chess table at Washington Square Park one weekend in April, said. He thinks that the costs of running an aboveground business, from licensing fees to sales taxes, will make illicit work only more appealing. “When you charge $60 to cover overhead, you’ve got a guy on the street charging $40,” he added.

After all, one of the big changes in the marijuana business is going to be the shift from an almost entirely laissez-faire industry to one that’s taxed and regulated to support one of the farthest-reaching social-justice programs in the state. “New York’s [new] laws are the most progressive to date, and historically things that have gone in New York have a wave westward,” said Catharine Dockery, founder of Vice Ventures, a venture-capital fund backed by Netscape founder Marc Andreessen and Andrew Yang adviser Brad Tusk that invests in marijuana businesses. The law was written with the legacy of the War on Drugs in mind, setting aside half the licenses for businesses owned by women and minorities, allowing for as many as 150,000 people to have their records for possession expunged, and splitting revenue from an additional 13 percent tax on aboveground sales among education, community grants, and drug treatment. New York is projecting that the new, aboveground industry will create as many as 60,000 jobs and bring in as much as $350 million for the state.

G. said he plans on operating in both the aboveground and illicit markets, and estimates he needs about $220,000 to $250,000 to set up a legal business, plus cover overhead costs like insurance. The way he sees it, he said, there will be a market for those willing to pay premium prices and stay lawful and those who want to pay less and don’t care as much about quality. In Colorado, he notes, “not all the weed grown for distribution is up to the same standards, because it has to be up to standard to get sold in a dispensary. They still sell it underground.”

Tommy, a seller who operates in another part of the park, said that he and other street-level dealers might try to get jobs in dispensaries once they open up, but he didn’t think the underground would go away. “The black market is still gonna be there. You can get weed on the black market that’s just as good or better,” he said.

There’s precedent to believe that. Two years after California legalized recreational marijuana, illegal sellers outnumbered legal ones three to one, according to a study at the time.“You would be surprised how many delivery dispensaries in California aren’t legal. It’s very expensive to start the process,” said M., who’s been running a New York delivery service for about 10 years.

For businesses, operating aboveground is much more complicated than staking out a table or operating an Instagram account. The state law will require a license for just about everything they do, though the Office of Cannabis Management website is light on details. Dealers said they’re also wary about the practical details of making the transition, like working with banks or real-estate agents that will expect to review their track record.

“Why why would you show a history of revenue for an illegal business?” Phil said. “Unless you’ve also been laundering your money and you’ve made a lot of it, you need outside capital.”

“It’s obvious who the big winners will be. People with money, Wall Street,” said M. “Same guys who talked shit about weed 10 [years] ago are gonna make all the money. That’s the sad part. The guys who live the weed lifestyle will for the most part be left out of the billions generated, and let’s not even talk about the minority communities.”

M. — who communicated with me by screencapped texts sent through an intermediary — said he plans to concentrate on growing and cultivation, and could expand into operating a dispensary, even though he thinks the black market will remain strong. “Once it goes full legal, I’ll be growing all my own product and no one will be able to compete with my prices or quality,” M. said. I’ve been collecting seeds from the top strains. Some of the seeds are more than $50 a piece and they sell out in seconds. I got the hook ups from some of the top genetics guys in Oakland. Plus I got some Ethiopian strains that no one has. Really no one.”

Some of these folks suggest that gaining more control over the genetics of the product — rather than relying on the flood of leftover weed from Western states — would be a boon toward distinct branding. “Once I start playing God with the strains, it’s over,” M. said. “I’ve been studying weed for over 30 years. All my dealers call me a nerd.” Carving out that image is a key step in getting noticed and growing, in a largely commoditized market — and, perhaps, turning themselves into a part of Big Weed. “There is value in branding yourself in the marketplace,” said Yin Lin, managing partner at 64 Squares Strategy Group, which advises companies on marijuana licenses in New York City. “If the numbers make sense, this is going to allow them to take a leadership position that will lead to acquisitions or lead to an opportunity to merge with a larger company. There’s inherent equity value in their companies that they’re not capturing by remaining in the black market.”

Dealers have been also studying up on California, with an eye toward modifying their brands to appeal to their more sophisticated East Coast clientele. “It’s all got this, like, California rapper-stoner aesthetic, and that’s just because that’s who was growing and buying the best weed out there,” Phil said. “Then those brands became very successful. But that whole particular aesthetic is not what really works with the segments of the New York market that I deal with.”

Phil said he knows that financiers bankrolling companies like his are spreading money around like venture capitalists, trying to get a stake in whatever business will be the biggest winner. But, he added, all that extra money could go a long way toward dominating the market. “Throw enough money at a problem and you get the right people,” he said, before blowing some smoke into the phone receiver. “There’s nothing stopping you right now except regulations.”

*Names of illegal dealers have been changed.

NYC Weed Dealers’ Choice: Go Corporate or Stay Underground?